Category: Financial Misconceptions
Why You Shouldn’t Retire Your Money
“I am getting close to retirement. Shouldn’t my portfolio be more conservative or even in cash?” Not necessarily. When you retire, you typically need your money to work for you over the next 20 to 30 years. Most people cannot afford to stop investing. Imagine saying, “I’m going to retire, stop earning money, and let my money retire too… neither of us needs to be earning.” This mindset can be detrimental to your long-term financial health. Investing during retirement is crucial because it helps you keep pace with inflation and maintain your purchasing power. If you shift all your assets to cash or overly conservative investments, you risk not only depleting your savings faster but also losing ground to inflation. The cost of living continues to rise, so your money needs to grow to keep up. Time and again I meet clients who, despite withdrawing money for decades, still have as much or more than they initially invested. This common scenario often looks something like this: you invest $1,000,000, withdraw $750,000 over time, and have $1,200,000 remaining. This is possible because their investments continue to generate returns that outpace their withdrawals. If you had left your money in savings instead
Four Common Concerns About Roth IRAs
There is a list of objections commonly used against the use of a Roth. The following are answers to the most common tax concerns. Concern #1: Is it better to pay taxes now or later? Because there are many unknowns related to tax code and changes in individual earnings, there is only one good way to approach this question meaningfully. One must presume that tax brackets will not change, individual earnings do not change, and that only the tax-deductible equivalent is invested using the Roth. To illustrate, a $5,000 contribution made to a traditional IRA by an individual in the 15% tax bracket, would result in an out-of-pocket expense of about $4,250 once you take into consideration the tax deduction. As such, $4,250 would be the ‘tax-deductible equivalent’ for use in comparing to a Roth. Presuming both contributions earn 6% per year, but withdrawals are tax-free to the Roth holder and taxable to the Traditional IRA account holder, the result is that there is no tax advantage either way. One did not position themselves better from a tax perspective. (There are still other advantages to using this strategy, such as not having a required minimum distribution and the cross generational
Delay Social Security, Not Your Retirement
Most people think that they can’t retire until they take Social Security. So, when I advise them to delay their Social Security benefit until age 67 (and most often until age 70), all they hear me saying is, “YOU HAVE TO WORK LONGER!” Not True! The age when you take Social Security and the age at which you retire DO NOT have to coincide. Where my clients are concerned, they have saved substantial amounts of money in their 401(k)s, IRAs, trust accounts and the like. They can retire, delay their social security benefit, withdraw from their retirement savings and then simply draw less once they start taking Social Security. If they live past 80, they are likely better off. No two financial plans are the same. Have your CFP® professional run your Social Security analysis to see what’s best for you.
Estate Plan vs. Beneficiary Statement
Misconception: “My designated beneficiaries on my IRAs and 401(k) are no longer relevant because I have had my estate planning done and I have a living trust.” Not so – don’t make this mistake. Bottom Line The beneficiary statement, whether it is for your 401(k), IRA, life insurance and so on is a will substitute. It matters not how your wills or trusts are written; the beneficiary statements dictate where those monies go. We recommend that you have your estate planning attorney periodically review these to make sure they are properly coordinated with your overall estate plan. Tell Me More This item deals with the transfer of asset at death. When a person passes away, each financial institution will look for an instruction about who should inherit the money. In many cases, a beneficiary is designated upon account establishment, such as in the case of a 401(k), IRAs, life insurance policies and so on. A beneficiary designation provides the necessary instruction to the institution for the distribution of the asset. But in cases where there is no beneficiary designation, such as an individual account or real estate, there is no instruction about to whom this money should go. As such,
Why You Shouldn’t Retire Your Money
“I am getting close to retirement. Shouldn’t my portfolio be more conservative or even in cash?” Not necessarily. When you retire, you typically need your money to work for you over the next 20 to 30 years. Most people cannot afford to stop investing. Imagine saying, “I’m going to retire, stop earning money, and let my money retire too… neither of us needs to be earning.” This mindset can be detrimental to your long-term financial health. Investing during retirement is crucial because it helps you keep pace with inflation and maintain your purchasing power. If you shift all your assets to cash or overly conservative investments, you risk not only depleting your savings faster but also losing ground to inflation. The cost of living continues to rise, so your money needs to grow to keep up. Time and again I meet clients who, despite withdrawing money for decades, still have as much or more than they initially invested. This common scenario often looks something like this: you invest $1,000,000, withdraw $750,000 over time, and have $1,200,000 remaining. This is possible because their investments continue to generate returns that outpace their withdrawals. If you had left your money in savings instead
Four Common Concerns About Roth IRAs
There is a list of objections commonly used against the use of a Roth. The following are answers to the most common tax concerns. Concern #1: Is it better to pay taxes now or later? Because there are many unknowns related to tax code and changes in individual earnings, there is only one good way to approach this question meaningfully. One must presume that tax brackets will not change, individual earnings do not change, and that only the tax-deductible equivalent is invested using the Roth. To illustrate, a $5,000 contribution made to a traditional IRA by an individual in the 15% tax bracket, would result in an out-of-pocket expense of about $4,250 once you take into consideration the tax deduction. As such, $4,250 would be the ‘tax-deductible equivalent’ for use in comparing to a Roth. Presuming both contributions earn 6% per year, but withdrawals are tax-free to the Roth holder and taxable to the Traditional IRA account holder, the result is that there is no tax advantage either way. One did not position themselves better from a tax perspective. (There are still other advantages to using this strategy, such as not having a required minimum distribution and the cross generational
Delay Social Security, Not Your Retirement
Most people think that they can’t retire until they take Social Security. So, when I advise them to delay their Social Security benefit until age 67 (and most often until age 70), all they hear me saying is, “YOU HAVE TO WORK LONGER!” Not True! The age when you take Social Security and the age at which you retire DO NOT have to coincide. Where my clients are concerned, they have saved substantial amounts of money in their 401(k)s, IRAs, trust accounts and the like. They can retire, delay their social security benefit, withdraw from their retirement savings and then simply draw less once they start taking Social Security. If they live past 80, they are likely better off. No two financial plans are the same. Have your CFP® professional run your Social Security analysis to see what’s best for you.
Estate Plan vs. Beneficiary Statement
Misconception: “My designated beneficiaries on my IRAs and 401(k) are no longer relevant because I have had my estate planning done and I have a living trust.” Not so – don’t make this mistake. Bottom Line The beneficiary statement, whether it is for your 401(k), IRA, life insurance and so on is a will substitute. It matters not how your wills or trusts are written; the beneficiary statements dictate where those monies go. We recommend that you have your estate planning attorney periodically review these to make sure they are properly coordinated with your overall estate plan. Tell Me More This item deals with the transfer of asset at death. When a person passes away, each financial institution will look for an instruction about who should inherit the money. In many cases, a beneficiary is designated upon account establishment, such as in the case of a 401(k), IRAs, life insurance policies and so on. A beneficiary designation provides the necessary instruction to the institution for the distribution of the asset. But in cases where there is no beneficiary designation, such as an individual account or real estate, there is no instruction about to whom this money should go. As such,
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